2007 (10) TMI 545 - SC - Indian Laws

Supreme Court ruling on disputes between jute mill owners and Jute Corporation of India

The Supreme Court of India addressed disputes between jute mill owners and the Jute Corporation of India (JCI) regarding compulsory purchases of raw jute, ... Whether a discretionary jurisdiction would be refused to be exercised solely on the ground of existence? Whether the amount deposited with the learned advocate for the writ petitioners was sufficient to cover the carrying cost and other charges in terms of clause 5.0, is a question of fact and for resolving such disputes detailed investigation is necessary which is beyond the scope of the original writ applications? Held that:- In exercise of a jurisdiction under Article 142 of the Constitution, in the peculiar facts and circumstances of this case, all disputes and differences between the parties be referred to the arbitration in terms of clause 9.0 of the contract. Reference to arbitration would be deemed to be one under the 1996 Act. The parties would be at liberty to approach the High Court for any other or further direction(s). The learned Arbitrator would make an Award within a period of four months from the date of entering into reference. All amount deposited by the appellant with the learned advocate on record towards the carrying charges should be paid to the second respondent, wherefor an appropriate receipt would be given. Such payment shall be without prejudice to the rights of the parties before the Arbitrator and shall be subject to any other or further order or direction that may be issued by the learned Arbitration in his Award. Issues Involved:1. Authority of the Jute Commissioner to compel compulsory purchase of raw jute.2. Interpretation of the Production Control Orders (PCO) and the contractual obligations therein.3. Obligation to pay carrying costs and other charges under Clause 5.0 of the sale contract.4. Jurisdiction of the High Court versus arbitration in resolving disputes arising from the contract.Issue-wise Detailed Analysis:1. Authority of the Jute Commissioner to Compel Compulsory Purchase of Raw Jute:The appellants challenged the authority of the Jute Commissioner under the Essential Commodities Act and the Jute and Jute Textile Control Order, 2000, to mandate the compulsory purchase of raw jute from the Jute Corporation of India (JCI). The appellants filed a writ petition seeking a declaration that the Jute Commissioner had no power to enforce such compulsory purchases. However, the High Court did not grant this relief and instead focused on the compliance with the contractual terms.2. Interpretation of the Production Control Orders (PCO) and the Contractual Obligations Therein:The Jute Commissioner issued PCOs directing jute mill owners to manufacture specific quality gunny bags and purchase raw jute from JCI. The appellants did not comply with these orders and purchased raw jute from the open market. The High Court held that the appellants were bound by the contractual obligations stipulated in the PCOs, including the purchase of raw jute from JCI. The Division Bench emphasized that the appellants, having accepted the interim order to clear the backlog in installments, could not refuse to pay the carrying costs for late delivery.3. Obligation to Pay Carrying Costs and Other Charges Under Clause 5.0 of the Sale Contract:The appellants argued that Clause 5.0, which imposed carrying costs for late delivery, was not applicable as they had not furnished defective Letters of Credit. The Division Bench rejected this argument, stating that the appellants were obligated to pay carrying costs for not taking delivery within the stipulated period, regardless of the condition of the Letters of Credit. The court held that the appellants could not avoid the penalty by failing to take delivery or furnish Letters of Credit.4. Jurisdiction of the High Court Versus Arbitration in Resolving Disputes Arising from the Contract:The contract between the parties included an arbitration clause (Clause 9.0) for resolving disputes. The High Court initially interpreted the contract and determined the applicability of Clause 5.0. However, the Division Bench directed that the quantum of carrying costs be settled through arbitration, as stipulated in the contract. The Supreme Court emphasized that when an arbitration agreement exists, the writ court should not exercise its discretionary jurisdiction to resolve disputes that fall within the scope of the arbitration clause.Comprehensive Summary:The Supreme Court of India addressed multiple issues arising from the contractual obligations between jute mill owners and the Jute Corporation of India (JCI) under the Jute and Jute Textile Control Order, 2000. The appellants challenged the authority of the Jute Commissioner to mandate compulsory purchases of raw jute from JCI, but the High Court focused on the compliance with the contractual terms.The High Court held that the appellants were bound by the Production Control Orders (PCOs) issued by the Jute Commissioner, which required the purchase of raw jute from JCI. The appellants' failure to comply with these orders and their subsequent purchase of raw jute from the open market led to a dispute over the obligation to pay carrying costs for late delivery.The Division Bench of the High Court determined that the appellants were obligated to pay carrying costs under Clause 5.0 of the sale contract, rejecting the argument that this clause was only applicable in cases of defective Letters of Credit. The court emphasized that the appellants could not avoid the penalty by failing to take delivery or furnish Letters of Credit.The Supreme Court highlighted the existence of an arbitration clause (Clause 9.0) in the contract, which required disputes to be settled through arbitration. The court criticized the High Court for interpreting the contract and determining the applicability of Clause 5.0, while simultaneously directing arbitration for the quantum of carrying costs. The Supreme Court held that the High Court should have referred the entire dispute to arbitration, as stipulated in the contract.In conclusion, the Supreme Court directed that all disputes and differences between the parties be referred to arbitration in terms of Clause 9.0 of the contract. The court emphasized that the arbitration process should determine the quantum of carrying costs and other charges, and the High Court should not have exercised its jurisdiction when an arbitration agreement existed. The appeals were allowed to the extent of directing arbitration, and the parties were instructed to bear their own costs.